ECONOMICS 681 COMPARATIVE INSTITUTIONAL ECONOMICS I READING LIST AND SYLLABUS

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1 ECON 681 Fall 2010 Tu-Th 11:00-12:15 Tydings 2110 Peter Murrell Tydings 4106C, x ECONOMICS 681 COMPARATIVE INSTITUTIONAL ECONOMICS I READING LIST AND SYLLABUS Institutional economics proceeds from the premise that many distinctive aspects of an economy stem from the nature of its institutions, conventionally defined as the humanly constructed rules that structure economic (and political) interactions. The origin and formation of institutions is an essential element of economic history and economic development. The properties and the effects of institutions can only be understood by applying systematic analysis. Such analysis requires theory and empirics, complemented by knowledge of the particularities of the pertinent institutions and their setting. The comparative element recognizes the fact that institutions are often available only in discrete alternatives, which frequently differ considerably. Therefore, the standard mode of analysis is comparison between quite distinct institutional alternatives. Moreover, an essential characteristic of many institutions is that they apply to a whole society or a distinctive sub-part, such as a sector or a cultural group. Thus, there is lessened scope for observational variation if study is confined to one country or one type of economic system. Cross-country comparisons are an essential element of institutional economics. The following reading list includes more topics than can be covered in a one-semester introductory course. It also has more items within topics than students are expected to read when the topics are taught. The reading list is intended to be more than a reading list for a class; it offers a guide to students who want to study a specific area more deeply than can be accomplished in class. Which readings are most pertinent for the course will be clarified as the semester proceeds. Availability of copies of the readings: Most of the readings for this course are available on the internet and a copy will be easily found using Google. In the few cases where it is not obvious how to access a reading, I have provided some indication of where to look. For accessing many published readings in journals, it is necessary either to use a computer that connects to the internet using a University of Maryland IP address or to use the library's Research Port ( I can make available copies of readings not available on the internet, either by lending a physical copy or by ing. ***This reading list is always a work in progress. A small number of readings will be subtracted and added during the course of the semester.***

2 Econ 681, Fall 2010, Page 2 I. Introduction Douglass C. North. "Institutions," The Journal of Economic Perspectives, Vol. 5, No. 1. (Winter, 1991), pp Williamson, Oliver E., "The New Institutional Economics: Taking Stock, Looking Ahead" Journal of Economic Literature v38, n3 (September 2000): Gibbons, Robert. "Four Formal(izable) Theories of the Firm?", Journal of Economic Behavior & Organization, Volume 58, Issue 2, October 2005, Pages Hall, Robert and Jones, Charles. Why Do Some Countries Produce So Much More Output Per Worker Than Others? The Quarterly Journal of Economics 114, no. 1 (1999): II. Three Fundamental Institutions: Property, Decentralization, and Contract II.1 Property II.1.A General Krier, James E., "Evolutionary Theory And The Origin Of Property Rights" Cornell L. Rev., Vol. 95, P. 139 (2009) Coase, Ronald H., 1960, "The Problem of Social Cost," Journal of Law and Economics, 3, Dean Lueck And Thomas J. Miceli "Property Rights And Property Law" In Polinsky & Shavell eds., Handbook of Law and Economics. Available online at ssrn.com Robert C. Ellickson, "Property in Land," 102 Yale Law Journal 1315 (1993) Hylton, Keith N. (2006) "Property Rules and Liability Rules, Once Again," Review of Law & Economics: Vol. 2 : Iss. 2, Article 1. II.1.B. Analysis of Property Rights in Standard Environments Besley, Timothy and Maitreesh Ghatak, "Property Rights and Economic Development" Handbook of Development Economics: Volume V edited by Dani Rodrik and Mark Rosenzweig. Segal, Ilya and Michael D. Whinston. "Property Rights" In R. Gibbons and J. Roberts, eds., Handbook of Organizational Economics, Princeton University Press. Johnson, Simon, John McMillan, and Christopher Woodruff (2002). Property Rights and Finance, American Economic Review, 92(5): Djankov, Simeon, Caralee McLiesh, Tatiana Nenova, and Andrei Shleifer (2003). Who Owns the Media?, Journal of Law and Economics, 46(2): Acemoglu, Daron, Johnson, Simon, "Unbundling Institutions", Journal of Political Economy, October 2005, v. 113, iss. 5, pp Hornbeck, Richard. "Barbed Wire: Property Rights and Agricultural Development," Quarterly Journal of Economics, Vol. 125, No. 2, pp (May 2010).

3 Econ 681, Fall 2010, Page 3 II.1.C. The Effects of Ownership on the Institutional Environment See section III.3. II.1.D. Effects of Non-standard Ownership Forms Ericson, Richard, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform", Journal of Economic Perspectives, 5(4), Fall 1991, pages Shleifer, Andrei, and Vishny, Robert W., "Politicians and Firms" Quarterly Journal Of Economics, November Hansmann, Henry. When Does Worker Ownership Work? ESOPs, Law Firms, Codetermination, and Economic Democracy. Yale Law Journal (8) pp II.2 Decentralization Oates, Wallace E.. " An Essay on Fiscal Federalism," Journal of Economic Literature, September Dewatripont, Mathias, and Eric Maskin, "Credit and Efficiency in Centralized and Decentralized Economies, Review of Economic Studies, October Weingast, Barry (1997), "The Political Foundations of Democracy and the Rule of Law," American Political Science Review, 91, pp Cukierman, Alex. "Central Bank Independence and Monetary Control", The Economic Journal, Vol. 104, No (Nov., 1994), pp Qian, Yingyi and Gerard Roland (1998), "Federalism and the Soft Budget Constraint,"American Economic Review, 88: Che, Jiahua, and Yingyi Qian, "Insecure Property Rights and Government Ownership of Firms," Quarterly Journal of Economics, May, Alesina, Alberto and Roberto Perotti "European Union: A Politically Incorrect View." Journal of Economic Perspectives, 18:4, II.3 Transactions, Relationships, and Contract II.3.A The Transactional Problem: Theory and Predictions Nowak, Martin. "Five Rules for the Evolution of Cooperation" Science 8 December 2006 Vol 314. Gibbons, Robert. "Transaction-Cost Economics: Past, Present, and Future?" Scandinavian Journal of Economics, Gibbons, Robert. "Four Formal(izable) Theories of the Firm?", Journal of Economic Behavior & Organization, Volume 58, Issue 2, October 2005, Pages Bolton, Patrick and Mathias Dewatripont, Contract Theory MIT Press, Dixit, Avinash "Trade Expansion and Contract Enforcement." Journal of Political Economy, 111:6,

4 Econ 681, Fall 2010, Page 4 II.3.B Solutions to the Transactional Problem: Formal and Informal Benjamin E. Hermalin, Avery W. Katz, and Richard Craswell "The Law and Economics of Contracts", Polinsky & Shavell eds., Handbook of Law and Economics, Kreps, D. and R. Wilson. "Reputation and Imperfect Information." Journal of Economic Theory, Kandori, M. Social Norms and Community Enforcement, Review of Economic Studies, Greif, Avner. Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition American Economic Review v83, n3 (June 1993): Ayres, Ian and Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 Yale Law Journal 729 (1992). Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. "Courts", Quarterly Journal of Economics, May, II.3.C Empirical Studies on Transactions Masten, Scott E. and Keith J. Crocker. Efficient Adaptation in Long-Term Contracts: Take or Pay Provisions for Natural Gas American Economic Review, Masten, Scott and Stéphane Saussier, "Econometrics Of Contracts: An Assessment Of Developments In The Empirical Literature On Contracting" in Economics of Contracts: Theories and Applications, Brousseau E. & Glachant J-M Eds, Chiappori, Pierre and Bernard Salanié. "Testing Contract Theory: A Survey Of Some Recent Work" in Advances in Economics and Econometrics - Theory and Applications, M. Dewatripont, L. Hansen and P. Turnovsky, ed., Cambridge University Press, Cambridge, 2003, Working paper version: Ackerberg, Daniel A. and Maristella Botticini, "Endogenous Matching and the Empirical Determinants of Contract Form", Journal of Political Economy, 2002, vol. 110, no. 3. Hendley, Kathryn, and Peter Murrell "Which mechanisms support the fulfillment of sales agreements? Asking decision-makers in firms." Economics Letters, Johnson, Simon, John McMillan And Christopher Woodruff. "Courts And Relational Contracts, J. of Law, Econ., and Org. 18:1, Pp , Iyer, Rajkamal and Antoinette Schoar "The Importance of Holdup in Contracting: Evidence from a Field Experiment."

5 Econ 681, Fall 2010, Page 5 III. Institutional Change and Institutional Choice: Origins and Causes III.1. Culture, Custom, and Convention Guiso, Sapienza, and Luigi Zingales "Does Culture Affect Economic Outcomes?" Journal of Economic Perspectives, Spring Robert Sugden, "Spontanteous Order", The Journal of Economic Perspectives, Vol. 3, No. 4. (Autumn, 1989), pp Sushil Bikhchandani, David Hirshleifer, and Ivo Welch "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades," Journal of Political Economy, 100(5), October (1992): H. Peyton Young, "The Economics of Convention" The Journal of Economic Perspectives, Vol. 10, No. 2. (Spring, 1996), pp Burke, Mary and Peyton Young, "Social Norms" The Handbook of Social Economics, edited by Alberto Bisin, Jess Benhabib, and Matthew Jackson. Amsterdam: North-Holland. Forthcoming. Milgrom, Paul, Douglass North, and Barry Weingast, "The Role of Institutions in the Revival of Trade: The Medieval Law Merchant" Economics and Politics, 2, March 1990, Greif, Avner, 1994, "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies", Journal of Political Economy, 102, Robert J. Barro and Rachel M. McCleary "Religion and Economic Growth across Countries" American Sociological Review October Tabellini, Guido. "Institutions and Culture" Journal of the European Economic Association, Vol.6(2-3), Luigi Guiso, Paola Sapienza, and Luigi Zingales, "Cultural Biases in Economic Exchange" QJE August Luigi Guiso, Paola Sapienza, and Luigi Zingales "Long Term Persistence", August Herrmann, B., Thöni, C., Gächter, S. (2008): "Antisocial Punishment across Societies", Science, 319, pp Henrich, Joseph et al. "Markets, Religion, Community Size, and the Evolution of Fairness and Punishment" Science March 2010 Vol 327.

6 Econ 681, Fall 2010, Page 6 III.2 History Nunn, Nathan. "The Importance of History for Economic Development", Annual Review of Economics, Vol.1, No. 1, September 2009, pp Acemoglu, Daron, Simon Johnson, and James Robinson. "The Colonial Origins of Comparative Development: An Empirical Investigation", American Economic Review, December, 2001, volume 91, pp Raghuram G. Rajan and Rodney Ramcharan. "Landed Interests and Financial Underdevelopment in the United States" U. Chicago Joana Naritomi, Rodrigo Soares, and Juliano J. Assunção. "Rent Seeking and the Unveiling of De Facto Institutions: Development and Colonial Heritage within Brazil" Banerjee, Abhijit, and Lakshmi Iyer. "History, Institutions and Economic Performance: the Legacy of Colonial Land Tenure Systems in India." American Economic Review 95, no. 4 (September 2005): Glaeser, Edward and Andrei Shleifer, "Legal Origins." Quarterly Journal of Economics, 2002 III.3 Wealth: resources, productivity, and institutions accumulated from the past Mehlum, Halvor, Karl Moene, and Ragnar Torvik (2006) "Institutions and the resource curse." The Economic Journal, 116 (January), Daron Acemoglu, Simon Johnson, James A. Robinson, and Pierre Yared. "Income and Democracy" American Economic Review, 98(3), pp June Daron Acemoglu and James A. Robinson. "Persistence of Power, Elites and Institutions" American Economic Review, 98(1), pp March 2008 Torsten Persson and Guido Tabellini "Democratic capital: The nexus of political and economic change" American Economic Journal: Macroeconomics, Volume 1, Issue 2, July 2009 Hayek, F. The Road to Serfdom. London, G. Routledge & sons, Anderson, James H., Georges Korsun and Peter Murrell, "Which enterprises (believe they) have soft budgets after mass privatization? Evidence from Mongolia." Journal of Comparative Economics, David, Paul A."Path dependence: a foundational concept for historical social science", Cliometrica (2007) 1: Bowles, Samuel and Suresh Naidu "Persistent Institutions".

7 Econ 681, Fall 2010, Page 7 III.4 Politics and Political Economy Daron Acemoglu and James A. Robinson. "Persistence of Power, Elites and Institutions" American Economic Review, 98(1), pp March 2008 Olson, Mancur, "Democracy, Dictatorship and Development," American Political Science Review Vol. 87 No. 3, September Libecap, Gary Economic Variables and the Development of the Law: The Case of Western Mineral Rights, Journal of Economic History, June Dewatripont, Mathias, and Gerard Roland, "The Design of Reform Packages under Uncertainty" American Economic Review Peter Grajzl and Peter Murrell, "Lawyers and Politicians: The Impact of Organized Legal Professions on Institutional Reforms" Constitutional Political Economy, 17(4), pp , December, III.5 Choosing, designing institutions S. Djankov, E. Glaeser, R. La Porta, F. Lopez-de-Silanes, and A. Shleifer "The New Comparative Economics", Journal of Comparative Economics, December, Black, Bernard and Kraakman, Reinier "A Self-Enforcing Model of Corporate Law" Harvard Law Review, Vol. 109, No. 8 (Jun., 1996), pp Acemoglu, Daron, Johnson, Simon, "Unbundling Institutions", Journal of Political Economy, October 2005, v. 113, iss. 5, pp La Porta, R., F Lopez-de-Silanes, Pop-Eleches, C. and A. Shleifer Judicial Checks and Balances Journal of Political Economy, Glaeser E. and A. Shleifer, "The Rise of the Regulatory State", Journal of Economic Literature, Vol. 41, No. 2 (Jun., 2003), pp Grajzl, Peter and Peter Murrell, "Allocating Law-Making Powers: Self-Regulation vs. Government Regulation" Journal of Comparative Economics, Grajzl, Peter and Valentina Dimitrova-Grajzl "The Choice in the Lawmaking Process: Legal Transplants vs. Indigenous Law" Review of Law & Economic. Vol. 5 : Iss. 1, Article 26.

8 Econ 681, Fall 2010, Page 8 IV. The Effects of Institutions IV.1 Cross-country studies: macroeconomics of institutional development and growth Acemoglu, Daron, Simon Johnson, and James Robinson. "The Colonial Origins of Comparative Development: An Empirical Investigation", American Economic Review, December, 2001, volume 91, pp Dani Rodrik, Arvind Subramanian, and Francesco Trebbi Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development, Journal of Economic Growth, vol. 9, no.2, June 2004 Glaeser, Edward, Rafael LaPorta, Florencio Lopes-de-Silanes, and Andrei Shleifer (2004) "Do Institutions Cause Growth?", Journal of Economic Growth 9(3): IV.2 Miscellaneous micro-economic studies Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. "The Economic Consequences of Legal Origins" Journal of Economic Literature 2008, 46:2, Raghuram G. Rajan and Luigi Zingales "Financial Dependence and Growth" The American Economic Review, Vol. 88, No. 3 (Jun., 1998), pp Luigi Guiso, Paola Sapienza, Luigi Zingales. "The Role of Social Capital in Financial Development" The American Economic Review, Vol. 94, No. 3 (Jun., 2004), pp Daron Acemoglu, Simon Johnson, Pablo Querubin, and James A. Robinson. "When Does Policy Reform Work - The Case of Central Bank Independence" Brookings Papers on Economic Activity, 2008, 1, pp Meghana Ayyagari, Asli Demirgüç-Kunt and Vojislav Maksimovic. "How Well Do Institutional Theories Explain Firms Perceptions of Property Rights?" Review of Financial Studies (4): Chor, Davin. "Unpacking Sources of Comparative Advantage: A Quantitative Approach" (May 25, 2009). Nathan Nunn. "Relationship-Specificity, Incomplete Contracts and the Pattern of Trade," Quarterly Journal of Economics, Vol. 122, No. 2, May 2007, pp many could be added

9 Econ 681, Fall 2010, Page 9 V. Case studies V.1 Transition: destroying the old and constructing the new Murrell, Peter "Evolution in Economics and in the Economic Reform of the Centrally Planned Economies." in Clague, Christopher and Gordon C. Rausser, eds. Emergence of Market Economies in Eastern Europe, Blackwell Publishers, Blanchard, Olivier and Michael Kremer. Disorganization. Quarterly Journal of Economics, November Djankov, Simeon, and Peter Murrell "Enterprise Restructuring in Transition: A Quantitative Survey" Journal of Economic Literature, 2002, pp Murrell, Peter. "Institutions and Firms in Transition Economies," in Handbook of New Institutional Economics, edited by Claude Ménard and Mary Shirley, Springer, Beck, Thorsten and Luc Laeven, "Institutions and Growth in Transition Economies" Journal of Economic Growth, Volume 11, Number 2 / June, Babetskii, Ian and Campos, Nauro. "Does Reform Work? An Econometric Survey " V.2 England, 1688 North, Douglass and Barry Weingast, "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History, December, Murrell, Peter. "Design and Evolution in Institutional Development: The Insignificance of the English Bill of Rights." Working Paper, September V.3 Legal Origins Glaeser, Edward and Andrei Shleifer, "Legal Origins." Quarterly Journal of Economics, La Porta, R., F Lopez-de-Silanes, A.Shleifer and R. Vishny (1998), Law and Finance, Journal of Political Economy 106: Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. "The Economic Consequences of Legal Origins" Journal of Economic Literature 2008, 46:2, Thorsten Beck,. Asli Demirgüç-Kunt, and Ross Levine, "Law and finance: why does legal origin matter?" Journal of Comparative Economics 31 (2003) Daniel Berkowitz, Pistor, Katharina, and Jean-Francois Richard. "Economic Development, Legality and the Transplant Effect,", European Economic Review. 47(1) February 2003, Pages

10 Econ 681, Fall 2010, Page 10 V.4 China: Incremental Reform Using Second-Best Institutions Qian, Yingyi. "The Process of China's Market Transition ( ): The Historical, Evolutionary and Comparative Perspectives." Journal of Institutional and Theoretical Economics. March 2000, 156(1), pp Qian, Yingyi. "How Reform Worked in China." in In Search of Prosperity: Analytic Narratives on Economic Growth. Dani Rodrik, ed. Princeton: Princeton U. Press, pp Working paper version: Li, Wei, A Tale of Two Reforms: The Importance of Initial Market Conditions, Rand Journal of Economics, Lau, Lawrence; Qian, Yingyi and Roland, Gérard. "Reform without Losers: An Interpretation of China's Dual-Track Approach to Transition," Journal of Political Economy, February Jin, Hehui, and Yingyi Qian, "Public vs. Private Ownership of Firms: Evidence from Rural China," Quarterly Journal of Economics, August, , no. 3 : Bai, Chong-En, David D. Li, Yingyi Qian, and Yijiang Wang, "Commitment, Incentives, and Information: The Case of Anonymous Banking" August Donald Clarke, Peter Murrell, and Susan Whiting, "The Role of Law in China s Economic Development" Forthcoming in China's Great Economic Transformation, Loren Brandt and Thomas Rawski eds. Cambridge University, Press as "Law, Property Rights and Institutions" Lu, Yi, Ivan P.L. Png, and Zhigang Tao "Do institutions not matter in China? Evidence from enterprise level productivity growth" VI. Measuring Institutions Freedom in the World. D. Kaufmann, A. Kraay, and M. Mastruzzi "Governance Matters IV: Governance Indicators for " World Bank, "Governance Diagnostics", Hendley, Kathryn, Murrell, Peter, "Which mechanisms support the fulfillment of sales agreements? Asking decision-makers in firms." Economics Letters 78 (1), World Bank, Doing Business. Schneider, F. "Shadow Economies around the World: What Do We Know?" European Journal of Political Economy, 21 (3), p , Sep 2005